Net Worth calculation

I mentioned one of my goals for 2015 was Net Worth based, so just how do you calculate your Net Worth?  It’s really just your assets less your liabilities…simple right?

There’s no one way to calculate it, here’s how I look at it.

At a high level

I look at the NW calculation in the same way as a company balance sheet, a Mr&Mrs Zombie Ltd (privately owned obviously) if you will.

At the top I have my long term assets (pension fund, property, share options) followed by my short term assets in order of decreasing liquidity (cash, savings accounts, ISAs etc).

Then I have my short term liabilities (credit card).  The net of my short term assets and liabilities is my Net Current Assets.  You definitely want this to be positive, I like to think of this as my current liquid funds, rather than just my current account.  Liquid in the case of an emergency.  You probably want this more than 3 months of living expenses to be safe, but as you creep towards a years worth it is getting excessive.  Net Current Assets seem to me a good way of keeping track of this.

And finally the long term liabilities (normally just your outstanding mortgage if you have one).

I actually have a reserves section at the bottom, just like a balance sheet 🙂  Haha, I’m so sad.

What assets to include?

Depends on the point of your Net Worth calculation.  As I am using mine to track my progress towards FI I keep it restricted to my residential property and cash/investments.  I can’t see the point of adding my car, TV, clothes, ornaments, Xbox etc to this.  Might be nice to see a boost in your NW but I don’t think it’s applicable here.  If I sell them, then so be it, they have by passed my system and made it onto the prestigious Mr&MrsZombie Ltd balance sheet as cash.

I include my share options at cost, pretty pessimistic when they are ‘in the money’?  I could use Black-Scholes (or some other option valuation technique) to assign a value but as I can’t trade them, they won’t vest for another few years yet and I can only take the cash value before they vest it seems pointless.  Valuing them will just add value that I can’t touch for another couple of years yet.

Should you include future earning potential on here?  No.  (Even if you did, surely you would need some kind of deferred liability to set it off against, which seems like a lot of work for £0 increase to your NW:)

Residential Property

Should you include your home in your Net Worth?

A mortgage represents a huge liability for a big proportion of us and so it seems this should be included.  And paying off your mortgage is a huge step towards FI.  But if we include this then we should include the asset that it is secured against, your home.

But how to include your property?  We could include it at cost, i.e. the value we paid for it.  Or we could try to include it at Market Value (this term is used loosely as it’s going to some estimate, say the value per Zoopla).

I can’t decide so I to do two NW calculations each week, one with my property and one without.  With the property lets me keep tabs on paying off the mortgage and having some kind of idea what it might be worth if we were to sell it.

I look at the NW calculation without the property as my progress towards FI.  My FI calculations assume the mortgage is already paid off and so any income needed to live off wouldn’t have to go towards any mortgage payments.  If the property was generating an income (if we had lodgers) or a mansion and we planned to downsize and release some equity that would be different, sadly it’s far too modest for that.  Much smaller and we would be living in a bin.

I would include investment properties at market value, but I don’t have any…yet

So what does it look like

+ Long Term Assets (Pension fund, share options, residential property if you want to include it)
+Short Term Assets (Cash and other liquid funds)
– Short Term Liabilities (Credit card, other short term loans if applicable)
STA – STL = Net Current Assets (liquid funds)
– Long Term Liabilities (Mortgage)
= Your Net Assets (your Net Worth)

A positive net worth is good 🙂  A negative net worth is bad 🙁

Just keep it simple and keep tracking it!  Anyone do it any different?

Spend less, save more, escape the Horde.

Mr Z

8 thoughts on “Net Worth calculation

  1. weenie

    Hi Mr Z
    When calculating net worth, personally, I'm of the view of not including the property that you live in. After all, it's only worth money if you sell it and you then have to get somewhere else to live? But that's just my view, plenty of people seem to include it in their net worth calculations.

    For my own net worth, I don't include my company pension, partially because I no longer know what it's worth (they changed the statements a few years back and I don't want to just guess at the value). I'm only including the savings/investments that I've accumulated personally and that includes my personal pension and SIPP that I pay into.

    It probably doesn't really matter how you work it out, as long as you are consistent so you can measure your progress.

  2. Mr Zombie


    I agree about the property, although including it does boost it 🙂

    I'm not sure on my pension to be honest. It's a defined contribution scheme, so I can get a fund value easy enough. But I can't touch the money until the government says so, 57 at the moment I think. I include it at the moment, but slowly leaning towards the same way of thinking as you.

    Totally agree, consistency is key!

    Mr Z

  3. Zee @ Work To Not Work

    I never include my property in my net worth. It's one of those things where if I were to sell it then I would put the money either into another house to live somewhere else, or then suddenly I would have a big chunk of money which would be invested and the dividends or earnings off of that money would go to pay off my new rent somewhere else….

    Basically I don't count things in my net worth that I don't plan on selling. Perhaps my dog has a cash value, but I'd never sell her so why use that in a calculation, same goes with my laptop or some of the art I have in my house. I don't plan to ever sell it so I would never add it to my net worth. Should people count smart phones in their net worth to boost it another few hundred dollars? That just seems silly to me.

    Sure I could sell them in an emergency but that would be extreme circumstances probably and at that point I probably am just trying to survive. When people include the value of their cars I think it's silly…. Most people probably aren't going to sell their cars and they won't make money off them either.

  4. theFIREstarter

    I think you've nailed it here Mr Z… keeping a track of the two figures, one with and one without property let's you keep an eye on both aspects of getting to FI, one of which is having a pot of investments that provide income via the 4% SWR rule and the other is having a paid off mortgage.

    I wanted to write almost exactly this post about 8 months ago but never got round to it, but I might just do a post and point people here instead 🙂

  5. Mr Zombie

    Hi Zee,
    Thanks for the comment.
    Yeah I agree, if my plan was to buy a bigger house than I needed then downsize at some point to release the excess (and benefit from no CGT like a hero) then perhaps there would be some argument?

    Haha – poor dog. Don't sell her!

    Yeah, it gets to a point when you are just trying to inflate your NW to feel better, best include all my pants in there for a few £'s boost.

  6. Mr Zombie

    Yep! It's good to know how close you are to paying off your mortage, as that has to be a principal component of getting towards FI.

    Ha – I would be honoured 🙂

  7. Berry

    I guess it kind of depends on what your trying to establish. Personally, I am trying to pay off my morgage as soon as possible plus trying to create a nice portfolio. Because of that, I really like tracking the progress in the net worth of my house (What’s it worth – What do I owe the bank). Method of calculation might be a discussion point here, given the fact that the government determines the value of your house each year (the Netherlands), but this fluctuated really a lot.

    Anyway, the fact that you are tracking is the most important thing. Even my financially totally uninterested lady friend, likes to see the changes in our net worth.

  8. Adam

    I wouldn’t include the value of the house, even while I would include the liability of a mortgage. I only include the cost of what is going to help my financial independence vs what hurts that number and what my place is worth doesn’t help that until it’s sold. For instance I have collectibles, gold, and silver as an alternative asset, but they aren’t worth anything until they’re sold. Until something is done with the physical item it’s only a potential asset.


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